Refusing impunity for the killers of Sergei Magnitsky

Origin - Addendum to the report
approved by the committee on 27 January 2014. 2014 - First part-session

1. Introduction

1. The report and its appendix, providing an update
from the time of the draft report’s first discussion on 26 June
2013, was adopted by the Committee on Legal Affairs and Human Rights
on 4 September 2013. Since this date, there have been some new developments:

the High Court in London rejected
the libel suit against Mr Sergei Magnitsky’s former client and former employer,
Mr William Browder and Mr Jamison Firestone, which had been brought
by Mr Pavel Karpov, one of the policemen named as having been involved
in the fraud denounced by Mr Magnitsky and the subsequent cover-up;

some progress was made in following the “money trail”:
funds from the fraudulent tax reimbursement denounced by Mr Magnitsky
were tracked to New York and to a number of European States, in
addition to those already mentioned in the main report;

the Russian authorities cleared Ms Olga Stepanova, the
former head of the Moscow tax office No. 28 through which the majority
of the fraudulent tax reimbursements denounced by Mr Magnitsky was
made; considerable funds from the fraudulent disbursements had been
tracked to her husband.

2. These new developments have led me to two interrelated conclusions:

i. in order to fully elucidate the
crime denounced by Mr Magnitsky and to hold to account its perpetrators and
beneficiaries, it is particularly important to step up international
co-operation, in particular to follow the “money trail” wherever
it leads;

ii. the Russian authorities must be convinced of participating
in this international effort: without their co-operation, it is
very difficult to establish the detailed circumstances of the predicate
offence, which are needed to successfully prosecute
money laundering.

3. The surprising exoneration of Ms Stepanova, despite all the
evidence against her and her husband that has already been made
public, shows that the competent Russian authorities have still
not seriously investigated the crime denounced by Mr Magnitsky.
The perpetrators and beneficiaries of this crime are at the same
time the prime suspects for the crime committed against Mr Magnitsky;
we must continue to refuse their impunity, as it is said in the
title of the report adopted by the Committee on Legal Affairs and
Human Rights on 4 September 2013.

4. In order to give a new impetus to the international co-operation
required in this respect, I am suggesting that – in addition to
the draft resolution already tabled in September – the Parliamentary
Assembly also addresses a recommendation to the Committee of Ministers
urging it to take up this matter. I have therefore included a draft
for such a recommendation in this addendum.

2. New developments in the “Magnitsky case”
since the adoption of the report by the Committee on Legal Affairs
and Human Rights

2.1. Rejection of the libel suit against Mr Browder
and Mr Firestone

5. Mr Karpov is one of the Russian Interior Ministry
investigators accused of complicity both in the US$230 million tax
reimbursement fraud denounced by Mr Magnitsky and in its cover-up,
including Mr Magnitsky’s death in detention. He had sued Mr Browder and Hermitage, Mr
Magnitsky’s former client, and Mr Firestone, his former employer,
for libel, before the High Court in London.

6. He complained about Mr Browder, Hermitage and Mr Firestone
having publicly accused him of complicity in the “torture and murder”
of Mr Magnitsky, in particular in the films posted on the website
“Russian-untouchables.com”. Mr Karpov is also included in the
“Magnitsky list” published by the US Department of Treasury on 12
April 2013 pursuant to the “Sergei Magnitsky Rule of Law Act 2012”.

7. The lawsuit threatened to be extremely costly. Mr Karpov took out a bank loan guaranteed
by an undisclosed friend in order to fund his own costs – having
hired a prominent London law firm – and the guarantee he had to
post for the defendants’ costs.

8. Mr Browder and Mr Firestone asked the Court to reject the
application as an “abuse of procedure” before the trial stage. The
Court followed their request even though it did
not share all their arguments.

9. Among the arguments which did not persuade the Court was the
defendants’ claim, based on the unclear funding sources for the
lawsuit, that Mr Karpov was in reality not trying to defend his
own reputation, but an avowed political objective of the Russian
State.

10. Also, the Court did not believe that the defendants had made
a successful plea of justification (of the libellous allegations
against Mr Karpov). The only overt act relied on is Mr Karpov’s
involvement in the arrest and imprisonment of Mr Magnitsky. The
causal link made between the arrest and imprisonment and Mr Magnitsky’s
death is “wholly lacking” according to the Court. The
Court even considered that Mr Karpov had achieved a measure of vindication
as a result of the views it had expressed on the application. But
the Court has qualified this finding by using the expression “presently
set out in the pleadings”, because the possibility existed that
the defendants could amend the particulars of the plea of justification
to rely on participation in a broad conspiracy and/or joint enterprise
(instead of the charge that Mr Karpov was a primary or secondary
party to Mr Magnitsky’s torture and murder).

11. A key issue for the Court was the need to balance the rights
under Article 8 (protection of reputation) and Article 10 (protection
of freedom of speech) of the European Convention on Human Rights
(ETS No. 5, “the Convention”). Interestingly, also in view of other
ongoing work in this committee, the
High Court agrees with the defendants’ submission based on the case
law of the European Court of Human Rights that “where a party acts,
in effect as a whistleblower, disclosing serious allegations of
what it believes to be misconduct by a public authority, the Court
should afford a special degree of protection under article 10”.

12. The main reasons for the Court’s rejection of the libel claim
as an abuse of procedure the following:

“the Claimant cannot establish a reputation within this
jurisdiction sufficient to establish a real and substantial tort
… and that there is ‘a degree of artificiality’ about his seeking
to protect his reputation in this country”, the natural forum for
such a claim would have been the Russian courts;

“if the case were to proceed, the Court would be faced
with a difficult causation issue arising from the delay in bringing
proceedings, and that much of the damage to the Claimant’s reputation
occurred before that date, outside the jurisdiction and not as a
consequence of the defamatory publications”;

finally, the likely costs and court time required for
a full trial balanced against the limited benefits even of a hypothetical
favourable judgment for the claimant, applying the above-mentioned
“proportionality” or “ultimate balancing” test (between Article
8 of the Convention – protection of reputation, and Article 10 –
freedom of speech), led the Court to the conclusion that “these
proceedings should be struck out as abuse of the process”.

2.2. Some progress in money laundering investigations

13. Since the adoption of the main report, some progress
has been made in tracking funds originating from the fraudulent
tax reimbursement denounced by Mr Magnitsky to Luxembourg, Denmark,
France and the United States.

2.2.1. Complaint filed by Hermitage in Luxembourg on
10 September 2013

14. Two more “money trails” totalling €14 million originating
in the fraudulent tax reimbursements and leading to accounts in
Luxembourg have been discovered in the course of further analysis
of the information provided by whistle-blower Perepilichny (whose
death in England in November 2012 remains unelucidated).

15. The first stations of the “money trail” (from the treasury
via the unlawfully seized Hermitage companies’ accounts with Universal
Savings Bank and Intercommerz via Russian and Moldovan screen companies (Fausta,
Anika, ZhK, Univers in Russia and SC Bunicon-Impex SRL and SC Elenast-Com
SRL in the Republic of Moldova), and the transfer out of Russia
being the work of a bank notorious for money laundering, Krainiy Sever,
finally the accounts of Bunicon and Elenast with Banca De Economii
in the Republic of Moldova are common to both “money trails”. Similar
way stations were also used for transfers of funds ending, for example, in
Cyprus and in Switzerland.

16. In the Republic of Moldova, the “trails” split, one reaching
Luxembourg via Lithuania, and one via Estonia: two transfers from
Bunicon and Elenast went to Vanterey’s (a firm registered in the
British Virgin Islands) account with Ukio Bankas in Lithuania, and
from there to the account of a company named CLP in Luxembourg.
Another went from Elenast in the Republic of Moldova to the account
of Argenta Systems (Belize) with Sampo Pank in Estonia, and from
there two payments of €6.9 million each were made to the Luxembourg accounts
of three financial companies, one of which, now listed as defunct,
was incorporated in Mauritius.

17. In its detailed complaint addressed to the Luxembourg authorities
on 10 September 2013, Hermitage submitted the relevant documentation
and requested inter alia that
a criminal investigation be opened into the suspicious transactions,
that the accounts holding the illicit funds be frozen pending investigation
and that the end beneficiary of the transactions be identified.

2.2.2. Complaint filed by Hermitage in Denmark on 16
September 2013

18. About US$1 million was traced from the fraudulent
tax reimbursements in question to two corporate accounts of offshore
companies with Nordea Bank in Denmark. One of the offshore companies
was registered in the Bahamas to a shareholder from Montenegro.

19. These funds reached Denmark in part through Estonia (from
the account of a corporate way station, Jackwell LLP at Estonia’s
Sampo Pank, which had in turn received the funds from Elenast and
Bunicon, in Moldova), and in part through Lithuania (from Vanterey(British
Virgin Islands)’s account at Ukio Bankas).

2.2.3. Complaint filed by Hermitage in France on 17 September
2013

20. A total of €23 million have been traced to a French
company (an interior design firm in St Tropez) owned by a Russian
woman with dual citizenship. The “trail” is identical to that leading
to Luxembourg via Estonia until Argenta Systems (Belize)’s account
with Sampo Pank. From there, the funds were transferred to the St
Tropez firm’s accounts with the local branches of two major French
banks. Again, Hermitage submitted a detailed complaint to the competent
authorities and asked for the opening of an inquiry along the same
lines as in Luxembourg and Denmark.

21. It will surely be interesting to find out why, for example,
a small Russian-owned decorating firm on the Côte d’Azur received
€23 million from a company registered in Belize via an account with
an Estonian bank.

2.2.4. US Department of Justice files case to seize Manhattan
luxury properties on 10 September 2013

22. On 10 September 2013, the US Attorney for the Southern
District of New York lodged a civil forfeiture complaint against
real estate corporations allegedly involved in laundering proceeds
of the fraudulent tax refund denounced by Sergey Magnitsky. The
assets in question included five luxury apartments and three high-end
commercial spaces in Manhattan worth over US$23 million. According
to the filing, the funds originating in the US$230 million tax refund
were laundered through several shell companies into Cyprus-based
Prevezon Holdings, whose current registered shareholders include
the son of a former Minister of the Moscow regional government,
Denis Katsyv; and the funds transited through the same two Moldovan
shell companies (Bunicon and Elenast) and their accounts with Banka
de Economii, which already appear, inter
alia, in the above-mentioned fresh “money trails” to
Luxembourg, Denmark and France.

2.3. Exoneration by the Russian authorities of Ms Stepanova

23. On 15 April 2011, Mr Magnitsky’s former employer,
Mr Firestone, had filed a complaint against tax officials, including
the former head of Tax Office No. 28 in Moscow, Ms Stepanova, who
had approved a large portion of the fraudulent tax refunds denounced
by Mr Magnitsky.

24. In November 2013, the Russian Investigative Committee informed
Mr Firestone that it found no grounds to prosecute Ms Stepanova
and two of her deputies, Ms Olga Tsareva and Ms Elena Anisimova.

25. The Investigative Committee also informed Mr Firestone that
the authorities had not been able to question Ms Stepanova because
she had not been at the known addresses for a long time. The two
deputies had bought luxury apartments in Dubai, together with Ms
Stepanova’s (ex-)husband, Mr Vladlen Stepanov, shortly after the
fraudulent refunds made in December 2007.

26. I presented some information on Ms Stepanova’s suspicious
travels and her (or her husband’s) suspicious assets in the main
report. I must say I am rather surprised
that the competent Russian authorities are either incapable or unwilling
to hold Ms Stepanova to account for what seems to amount to a key
role in a serious crime against the Russian people. This is not
a good signal as regards the authorities’ willingness to fully investigate
this affair.

3. Conclusions

27. The above-mentioned new developments in the Magnitsky
case lead me to draw the following conclusions:

The laundering of the funds
that can be traced back to the fraudulent US$230 million tax refund denounced
by Mr Magnitsky has involved a large number of European States and
now even the United States of America. Given the complexity of the
criminal investigations required and the obvious need for international
co-operation, the Assembly should also seize the Committee of Ministers
in order to ensure that this important affair is included on the
agenda of intergovernmental co-operation and that the Assembly receives
a reply from the governments.

The Russian authorities have not made any progress in
investigating the matters highlighted in the main report and in
the draft resolution adopted by the Committee on Legal Affairs and
Human Rights on 4 September 2013. On the contrary, one of the main
suspects – Ms Stepanova – has recently been exonerated by the Investigative
Committee, without reference to the suspicious circumstances surrounding
the disbursement in record time of a record amount of tax refunds
into freshly opened bank accounts of criminals known as such by
the authorities, with a small and ill-famed bank that closed soon after
the receipt of the funds and “lost” all records.

28. Regarding the consequences that should be drawn from these
conclusions as to whether the time has now come to call for “smart
sanctions” against the perpetrators and beneficiaries of the crime
against Sergey Magnitsky, I prefer not to take position myself at
this stage but to leave this to the discussion that we will have in
the Assembly during the January 2014 part-session.

4. Draft recommendation

1. The Parliamentary Assembly refers to its Resolution ...
(2014) on refusing impunity for the killers of Sergei Magnitsky,
and invites the Committee of Ministers to examine ways and means:

1.1. of improving international co-operation in investigating
the “money trail” of the funds originating in the fraudulent tax
reimbursements denounced by Mr Magnitsky; and, in particular,

1.2. of ensuring that the Russian Federation fully participates
in these efforts and holds to account the perpetrators and beneficiaries
both of the crime committed against Sergey Magnitsky and that denounced
by him.